Gold has rallied 2.3% this week on the heels of renewed
tension with North Korea. It is trading at its best level in two
months, and is threatening to crack the $1,300 level for the
first time since the day following the US presidential
election.

Gold is viewed as a safe haven asset that investors flock to
during periods of uncertainty. Amid this renewed flare-up in
tensions with North Korea, Capital Economics decided to take a
look at how the precious metal has responded to geopolitical risk
events since 1985. What the research firm found might surprise
you.

According to analyst Simona Gambarini, the price of gold
"tends to rise in anticipation of a conflict but often falls when
tensions turn into a full-blown war."

Additionally, US-focused events tend to have a bigger
impact. "This is mainly due to the fact that in the event of a
crisis involving the US directly, investors are more likely to
seek refuge in an asset like gold which bears no country risk and
also benefits when the dollar depreciates," Gambarini writes.

Finally, not every conflict impacts the price of gold. "Indeed,
the biggest increases in the price of gold have occurred when the
US bombed Libya in 1986, in the wake of the Gulf War in 1990,
and, more recently, when ISIS attacks put oil supplies in the
Middle East at risk."

As for where gold can go from here, Capital Economics says that
"until there is some certainty as to how the current geopolitical
situation will evolve, gold prices are likely to remain well
supported and could even rise above $1,350 per ounce."

Interestingly, the charts are also pointing to the possibility of
a jump in gold prices. On Thursday, DoubleLine Capital CEO
Jeffrey Gundlach noted that
gold's chart had a cup and handle pattern, and said it was
"one of the most bullish" chart patterns out there.